Tag Archives: C-ROSS

Eye On China

The Chinese insurance market is changing as quickly as any in the world, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch.

China is the fourth largest insurance market, behind the United States, Japan and the United Kingdom, but it is poised to grow quickly as the government looks to insurance to “play a larger role in the country’s patchy social welfare system,” the Financial Times reports (subscription required).

The market may be best known for buying trophy properties worldwide. In the past two years, Anbang bought New York’s Waldorf Astoria, China Life bought a majority share of London’s Canary Wharf, and Ping An bought the home of insurance, the Lloyd’s Building of London.

Beyond the property plays, Fosun Group in May agreed to buy the 80 percent of property/casualty insurer Ironshore that it doesn’t own and  Fosun’s acquisition of U.S. p/c insurer Meadowbrook Insurance Group just received state regulatory approvals in Michigan and California.

The Financial Times report focuses on changes in the life sector, as the Chinese government encourages citizens to buy traditional life products and 401(k)-like pensions, but the P/C market is changing as well, as I recently wrote for the Casualty Actuarial Society (CAS):

China’s market has grown between 13 and 35 percent a year for the past decade . . . Property/casualty insurers wrote RMB 754 billion ($120 billion in U.S. dollars) of premium in 2014, 16.4 percent more than a year earlier. By contrast, U.S. property/casualty insurers wrote about $500 billion and grew just over 4 percent, with both figures reflecting the maturity of the U.S. market.”

Starting June 1, six provinces — about one-fifth of the country – overhauled the way auto insurance is priced, moving a bit closer to the U.S. model of loading expected claim costs for expenses and adjusting rates for underwriting factors like a good driving record.

China is also strengthening of capital standards, working on the same January 1, 2016, deadline as Europe’s Solvency II. It hopes its standard, known as C-ROSS, will become a template for emerging markets:

The new standard splits “supervisable” risks that regulators are good at addressing from the ones better handled by market mechanisms.

The supervisable risks are split between quantifiable ones, like insurance risk, and unquantifiable ones, like reputation risk. Another class of supervisable risks is control risk. For emerging economies like China’s, Huang said, it is even more important to watch how companies control their risks. Good risk management may result in a reduction in regulatory capital requirement, and poor risk management can result in a capital add-on of up to 40%.

There’s also a systemic risk element, which requires systemically important insurers to set aside more capital.”

The I.I.I. is drafting a white paper about global capital standards to be published later this year. I.I.I. President Robert Hartwig gave a presentation that covered global insurance issues (and quite a bit else) late last year.